With more than 100 countries mandating some form of e-invoicing, the move to streamline tax collection and improve overall economic efficiency is well underway. Navigating the changing landscape, however, isn’t simple. The lack of standardization around e-invoicing makes it a challenge for international businesses.
In a recent PaymentsJournal podcast, Marco Eeman, Managing Director at Billtrust, and Albert Bodine, Director of Commercial and Enterprise Payments at Javelin Strategy & Research, explored how much e-invoicing has changed and how businesses can best adapt to mandates and new requirements.
The Rise of Government Mandates and Standardization Efforts
A turning point for e-invoicing occurred when governments began mandating it. Compliance with local legislation became non-negotiable for businesses seeking to operate in countries that imposed such standards. Governments found that e-invoicing regulations not only facilitated tax collection but also promoted greater economic transparency and growth.
In 2014, the European Union initiated a directive with the aim of establishing a unified pan-European standard for e-invoicing, known as the OpenPEPPOL (Pan-European Public Procurement Online) project. The directive set a deadline for all EU member states to implement the use of this technology by the end of 2018, affecting more than 100,000 public administrations and agencies throughout Europe.
However, the directive left each country to determine its own approach to building an e-invoicing solution. As a result, companies trading with government and public sector agencies in different countries had to implement their own solutions to comply with the new regulations and maintain efficient operations.
Collaborations between governments and e-invoicing service providers have resulted in some level of standardization, simplifying invoicing for businesses that operate within the EU. However, achieving a single global standard remains a challenge due to diverse tax laws and regulatory frameworks.
“Electronic invoicing and the regulations related to it are all about taxes,” Eeman said. “Different countries have different tax laws, and they may compete to attract businesses with lower or more favorable tax rates.”
Countries as varied as Singapore, Japan, Australia, and New Zealand have joined the global e-invoicing movement, adopting models akin to the European standard. As the number of mandates increases, so will the market for e-invoicing service providers. However, the growth of electronic invoicing is driven not only by government regulations but also by the relationships between suppliers and buyers.
“Large buyers in industries like retail, oil and gas, and utilities have significant purchasing power and influence,” Eeman said. “They often require their suppliers to follow specific invoicing methods, which may include using certain portals or digital formats.”
The Importance of Quality Data and Collaboration
To achieve a clear understanding of invoicing across different parties, the adoption of widely used standards such as Universal Business Language (UBL) is essential. UBL ensures that specific terms have consistent meanings, facilitating the importing and processing for businesses. The focus on sending and receiving high-quality data results in more efficient processes, especially the handling of accounts receivable on the suppliers’ side.
“In the world of business-to-business (B2B) transactions, the focus is on making the invoicing and payment process frictionless and data-driven,” Bodine said. “The goal is to reduce manual efforts, ensure quick payments for suppliers, and enhance overall efficiency. This approach is particularly crucial for B2B interactions.”
The complexity of achieving a universal standard underscores the need for collaboration with knowledgeable partners that can navigate the variations and provide valuable insights and solutions.
An invoicing service provider such as Billtrust can play a crucial role in enabling efficient data transmission between businesses. By complying with various standards set by governments and buyers, invoicing providers can facilitate smooth transactions, reduce manual efforts, and enhance overall efficiency in the B2B realm.
“Even with the idea of having a standard, the reality is that different industries and regions have various implementations of standards,” Bodine said. “For example, the ISO 20022 standard has 40 different implementations worldwide, making it challenging to establish a single universal standard. This complexity highlights the importance of partnering with experts in the field who can navigate these intricacies.”
E-invoicing Helps Reduce Tax Fraud
In some countries, tax avoidance is rampant—and e-invoicing can help. Certain countries have taken a proactive approach by implementing the “clearance model” or “continuous transaction controls” for e-invoicing. Suppliers submit invoices to the government, which then forwards them to the buyers after recording the applicable taxes. This approach grants governments greater control over tax collection and offers insights into buyer-supplier relationships.
E-invoicing leaves a digital “paper trail” for transactions, which can be used for tracking and making sure everyone is accountable. Those looking to avoid taxes commonly use cash for payment, but by mandating e-invoicing, governments can—in theory—put a damper on that.
“Italy was one of the early adopters of electronic invoicing in Europe,” Eeman said. “Italy realized that in some industries, collecting taxes could be challenging, especially when cash was commonly used. So they decided to implement electronic invoicing to close the VAT (value-added tax) gap and make their economy more efficient.”
Brazil and Mexico soon followed suit.
“These countries used electronic invoicing along with faster payment methods to make their business processes much more effective and streamlined,” Eeman said.
The global e-invoicing landscape is evolving rapidly, with an increasing number of countries mandating electronic invoicing. While a single global standard remains challenging, adopting best practices and collaborating with stakeholders is key. Rather than seeking separate solutions for each country, businesses should seek a unified global solution to effectively streamline their invoicing processes.